RBI's new auto-debit rule: How will it affect you?

Hyderabad The Reserve Bank of India's (RBI) new auto-debit framework which was announced earlier in August 2019 is finally going to be implemented from October 1, 2021.

In April, the RBI deferred new rules on automatic debit by six months. It was done on request of banks, customers and the digital payment companies, which said they were unprepared for the March 31 deadline.

Regarding the new rules, banks have started informing the account holders about the changes they are going to face while making auto transactions

"As per RBI's recurring payment guidelines, w.e.f. 20-09-21, Standing Instructions on your Axis Bank Card(s) for recurring transactions will not be honoured. You can pay the merchant directly using your card for uninterrupted service," says a statement issued by Axis Bank to its customers.

The changes are as follows,

1) The framework states that recurring transactions based on standing instructions given to the merchants by the cardholders will be brought within the ambit of additional factor of authentication (AFA).

2) Customers will need an additional authentication for all recurring transactions.

3) An additional one-time password (OTP) will be required for transactions above Rs 5,000 to ensure that payments are authorised.

4) A pre-transaction notification will be sent to the cardholder at least 24 hours prior to the actual charge or debit to the card.

5) On receipt of the pre-transaction notification, the cardholder shall have the facility to opt-out of that particular transaction or to e-mandate the transaction.

6) The cardholder shall be given the facility to choose a mode among available options like SMS, email, etc., for receiving the pre-transaction notification from the issuer in a clear, unambiguous manner and in an understandable language.

7) The facility for changing this mode of receiving pre-transaction notification shall also be provided to the cardholder.

8) This new rule will be applicable for all transactions performed using debit and credit cards.

RBI had directed all banks including RRBs, NBFCs, and payment gateways to comply with AFA for automatic recurring payment by September 30, 2021, in order to make the digital transactions safe and protect customers from fraudulent transactions.

"Any further delay in ensuring complete adherence to the framework beyond the extended timeline will attract stringent supervisory action," the RBI had cautioned.

What's in for banks and bearers

For banks and payment institutions, the new rules pose a major challenge. It will require them to overhaul existing recurring payment flows and maintain standardisation for smooth execution of payments.

There is fear among digital services operations like the over-the-top (OTT) platforms, which fear that they will lose customers who may henceforth find it more tedious to make payments.